Working in Prague but living in Central Bohemian Region, is it financially worth it?

• Název práce v češtině: Pracovat v Praze, ale žít ve Středočeském kraji. Vyplatí se to finančně?
• Název v anglickém jazyce: Working in Prague but living in Central Bohemian Region, is it financially worth it?
• Klíčová slova: trh s nemovitostmi, Praha, nabídky pronájmu, čistá současná hodnota, doprava, odhad nákladů, Středočeský kraj
• Klíčová slova anglicky: housing market, Prague, rental offers, net present value, transportation, cost estimation, Central Bohemian region
• Akademický rok vypsání: 2019/2020
• Typ práce: bakalářská práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: Mgr. Bc. Vít Macháček, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 29.03.2020
• Datum zadání: 30.03.2020
• Datum a čas obhajoby: 08.09.2020 09:00
• Místo konání obhajoby: Opletalova - Opletalova 26, O105, Opletalova - místn. č. 105
• Datum odevzdání elektronické podoby: 31.07.2020
• Datum proběhlé obhajoby: 08.09.2020
• Oponenti: PhDr. Michal Hlaváček, Ph.D.

Seznam odborné literatury

1.Tabner, I. T. (2008). Should I buy or should I rent: and what is an appropriate discount rate for housing consumption in household finance?. Available at SSRN 963993.
2.Brůhová-Foltýnová, H. Estimation of the value of time in the Czech Republic using discrete choice models.
3.Tláskalová, A. (2018). Home Ownership vs. Renting: Comparison of Costs in the Czech Republic.
4.Source: https://www.czso.cz/documents/10180/20568817/azam080414analyza.pdf/55d110d0-4627-4a4d-b0d9-af0aef61ba66?version=1.0
5.Mitra, S. K., & Saphores, J. D. M. (2019). Why do they live so far from work? Determinants of long-distance commuting in California. Journal of transport georgraphy, 80, 102489.
6.Plaut, P. O. (2006). The intra-household choices regarding commuting and housing. Transportation Research Part A: Policy and Practice, 40(7), 561-571.

Předběžná náplň práce v anglickém jazyce

Research question and motivation

The main objective of the thesis is to do a cost-benefit analysis of renting flats in Prague vs. renting flats in 4 districts in Central Bohemian Region, namely, Kladno, Kolín, Příbram, and Mladá Boleslav. The underlying assumption for the analysis is that the person renting the apartment is commuting every day to Prague’s city center for work. The important part of the analysis is to financially evaluate time spent traveling to work by different transport modes and use this as a factor in cost-benefit analysis. In this manner, there is no research done at all. The most similar works compare the profitability of renting to house ownership. The main motivation to conduct the analysis is growing rental prices in Prague and above-average salaries in the capital. The trend of increasing prices for renting is clear, forcing people towards finding alternatives to living in Prague. Furthermore, there is a study that many people live in the Bohemian region and travel to Prague because of work daily (CZSO, 2013). According to this study, many people commute long distances to work outside their home region. This was a primary source of our motivation together with many friends considering living far outside the city.

Expected Contribution

The topic has not been studied from this perspective for the local area. The literature regarding the comparison between investing in renting in Prague versus renting in nearby districts in the Central Bohemian Region is lacking. However, a bachelor thesis done by Tláskalová (2018) analyzed the costs and benefits of renting vs. house ownership in Prague in detail. In her thesis, she examined all the benefits and costs of renting vs. buying apartments and evaluated it using net present value formula in different investment strategies. All this served as a source of inspiration, and our analysis is similar in data extraction, creation of datasets, and methodology of calculating NPV. However, apart from the completely different research question, this work varies in multiple ways as it compares 4 different districts in the Central Bohemian Region with Prague and will take daily commuting to work into account with direct transportation cost and the cost of lost time. This is a completely new methodology, as no work attempted to use the value of time with housing choice preference. In this manner, this work is aimed at individuals who cannot afford to buy an apartment or do not want to do it for personal reasons. In order to do the analysis correctly despite simplifying assumptions that are going to affect the results, we will model multiple parameters to account for the problem. Hopefully, by analyzing recent data, this work can serve as a guide and useful overview of alternative housing choices for someone working in Prague.

Methodology

The data about rental offers for all districts will be obtained from website sreality.cz using programming language Python. Next, we will use coordinates of the apartments to calculate distances and travel times to the center of Prague using Google Maps API. Similarly, as did Tláskalová (2018), after data preprocessing, we will use these formulas for net present value to calculate the profitability of rental offers:

MR = R + MRI

AR = 12*MR

PVR = (AR/(r - g))*(1-((1+g)/(1+r)))

where MR = monthly rent, AR = annual rent, MRI = monthly renter’s insurance, PVR = present value of rent

together with accounting for all costs connected to transportation. Transportation cost is accounted for based on the mode of transport. Financial estimation of commuting will heavily depend on the income of an individual. The value of transportation time will be calculated as:

PVTC = DS/1000*2*WD*KMC*t

where PVTC = car transportation cost, DS = distance in meters, WD = workdays in one year, KMC = cost of 1 km in Czech crowns, t = time period in years.

The value of transit transportation time will be calculated as:

PVTC = ATP * t

where PVTC = transportation cost, ATP – annual transport pass, t = time period in years.

In order to see the effect of the value of time on the profitability, we will calculate it for all 5 districts to be able to compare 4 districts in the Central Bohemian Region with the alternative of living in Prague.

Outline
1. Introduction to the topic
2. Literature Overview
3. Description of Data
4. Methodology
5. Interpretation of the results
6. Conclusion